2014 Ontario Economic Outlook and Fiscal Review
Chapter II: Economic Outlook

Overview

The outlook for Ontario's economy has evolved largely as expected at the time of the 2014 Budget. Growth is shifting away from a reliance on housing investment and consumer spending towards exports and productivity-enhancing business investment. This transition is expected to gain momentum as an improving global economy supports stronger, more balanced growth.

As part of developing Ontario's fiscal plan, the Ministry of Finance is forecasting real gross domestic product (GDP) growth of 1.9 per cent in 2014 and 2.4 per cent annually over the 2015 to 2017 period. This compares to a projection for real GDP growth in the 2014 Budget of 2.1 per cent in 2014, 2.5 per cent in both 2015 and 2016, and 2.6 per cent in 2017.

TABLE 2.1 Ontario Economic Outlook
(Per Cent)
  2011 2012 2013 2014p 2015p 2016p 2017p
Real GDP Growth 2.6 1.7 1.3 1.9 2.4 2.4 2.4
Nominal GDP Growth 4.6 3.2 2.4 3.5 4.4 4.4 4.4
Employment Growth 1.8 0.8 1.4 0.8 1.3 1.4 1.5
CPI Inflation 3.1 1.4 1.0 2.1 2.0 2.0 2.0
p = Ontario Ministry of Finance planning projection.
Sources: Statistics Canada and Ontario Ministry of Finance.

A resurgence of the U.S. economy will support Ontario economic growth through stronger demand for Ontario exports. However, global risks to the economic projection remain elevated. In particular, many eurozone countries continue to struggle with ongoing structural change and competitiveness challenges. Global interest rates, currencies and commodity prices may continue to experience increased volatility, contributing to business uncertainty, as evolving monetary policies and rising global tensions buffet financial markets.

Within Ontario, elevated levels of household debt and the housing market remain key risks for the economy. However, Ontario's economy has shown signs of stronger momentum. Major indicators, including real GDP, exports and household consumption, have posted solid gains since the beginning of 2014. As well, Ontario's unemployment rate has declined to 6.5 per cent in October, down from 7.5 per cent in January 2014 and the lowest rate of unemployment since 2008. The recent decline in the Canadian dollar and oil prices will improve Ontario's competitive position and could result in even stronger growth for the province.

Economic Expansion Continues

Ontario experienced a relatively weak pace of economic growth in 2013. Real GDP in 2013 rose by just 1.3 per cent, well below Ontario's potential, and the weakest pace of growth since the global recession. Slow economic growth in 2013 reflected lower residential construction, weaker business investment and slower growth in exports. However, recent indicators are providing solid evidence that Ontario's economic expansion gained momentum in 2014 and is well positioned for continued growth over the forecast period.

Economic growth rebounded 0.9 per cent in the second quarter of 2014 after an unusually harsh winter slowed the pace of economic activity in the first quarter. Including the second-quarter 2014 rebound, Ontario real GDP is now 11.3 per cent above its recessionary low. Ontario's post-recession expansion has been supported by strong gains in household spending, investment and exports.

The Ontario economy is gaining strength as rising exports and manufacturing output benefit from solid U.S. growth and a lower Canadian dollar. The view among private-sector economists, supported by recent economic data, suggests Ontario's economy is well positioned for continued growth over the remainder of 2014 and throughout the forecast period.

Ontario's Economy Continues to Create Jobs

Employment has rebounded strongly from the recessionary low. Since June 2009, Ontario has gained over half a million net new jobs, mostly in full-time positions and in the private sector. In addition, the majority of the increase has been in industries paying above-average wages, including professional, scientific and technical services and construction. As of October 2014, Ontario had 285,500 more jobs than at the pre-recession peak in September 2008. Ontario's unemployment rate has also declined from a recessionary high of 9.4 per cent in June 2009 to 6.5 per cent in October 2014.

The pace of job creation in Ontario since the end of the recession has been stronger than in most developed economies, including the United States and the average for member countries in the Organisation for Economic Co-operation and Development (OECD).

Global Economic Developments and Outlook

The global economy continues to expand at a moderate but uneven pace. Global real GDP growth is expected to remain unchanged at 3.3 per cent this year. In the United States, stronger growth in recent quarters has been driven by household spending and business investment. In Japan, economic activity is expected to improve modestly in the second half of 2014, following a contraction in the second quarter. China's economy has been transitioning away from investment-led development towards more balanced but sustainable growth. In the eurozone, economic growth remains uneven, with several countries struggling with prolonged downturns. Inflation has remained persistently low, prompting the European Central Bank (ECB) to embark on a quantitative easing program aimed at lifting economic growth.

Global growth is projected to improve in 2015, led by stronger economic activity in the United States. Economic growth in China is expected to stabilize at a more moderate pace, in part due to continued support from government-targeted stimulus measures. In the eurozone, growth is expected to gradually improve as the lower euro and more stimulative monetary policy support a modest recovery. However, many European countries still face a number of significant structural and fiscal challenges that could pose a risk to the expected improvement in global growth.

U.S. Economy

The U.S. economy has rebounded strongly in 2014, following a largely weather-induced contraction in the first quarter of the year. Underlying momentum appears to be broadening, with several key sectors of the economy improving. Employment gains, averaging about 230,000 jobs per month so far this year, have supported stronger household consumption. Motor vehicle sales have been very strong this year and the housing market continues to improve.

Long-term interest rates remain historically low as slow economic growth and low inflation globally have offset the end of the Federal Reserve's quantitative easing program. The U.S. dollar has appreciated against most major currencies this year, largely a reflection of the relative strength of the U.S. economy.

Steady employment gains and higher housing and equity prices have helped repair consumer balance sheets in the United States. Household net worth has more than recovered from the impact of the recession, helping to support consumer spending and residential investment. Meanwhile, improved financial conditions and solid business confidence are expected to support growth in business investment.

According to the consensus forecast,1 U.S. real GDP growth is projected to strengthen from 2.2 per cent this year to 3.1 per cent in 2015. The U.S. labour market is expected to continue improving steadily, with the unemployment rate declining from 6.2 per cent in 2014 to 5.3 per cent by 2017.

Oil Prices

The price of West Texas Intermediate (WTI) crude oil averaged $98 US per barrel in 2013. Geopolitical conflicts in Ukraine and the Middle East moved the WTI price to $107 US by mid-June 2014. Since then, the price of WTI has declined sharply to below $80 US, a reflection of rising supply and softer global demand.

Downward pressure on crude oil prices could intensify if supply growth, especially in the United States, remains strong. So far in 2014, U.S. oil production has surged to its highest level since 1986 and is expected to increase further in 2015. However, ongoing geopolitical tensions and high recovery costs will provide some support for prices. Lower oil prices, if sustained, will provide a boost to Ontario's economic outlook.

Financial Markets

In the United States, the Federal Reserve began reducing its purchases of U.S. treasury bonds and mortgage-backed securities in January of this year and ended these purchases in October. With the end of its quantitative easing program, most market participants expect the U.S. Federal Reserve to begin increasing its policy interest rate by mid-2015.

The Bank of Canada continues to maintain its policy interest rate at the historically low level of 1.0 per cent, unchanged since September 2010. Although inflation in Canada is close to the Bank's two per cent target and GDP growth was strong in the second quarter, significant downside risks for Canada's inflation and growth outlook remain. Interest rate increases in Canada, as in the United States, are expected to be gradual. The yield on three-month Canadian treasury bills is expected to average 1.2 per cent in 2015, up from an expected 0.9 per cent in 2014. Yields are forecast to reach 3.0 per cent in 2017.

Despite the withdrawal of the exceptional monetary stimulus in the United States, long-term government yields have trended lower this year, reflecting low inflation in advanced economies and ongoing global economic concerns. Many market observers believe that interest rates in advanced economies may remain lower for a longer period, and could remain lower than has been the case historically. The yield on 10-year Government of Canada bonds is expected to rise gradually from an average of 2.2 per cent in 2014 to 2.9 per cent in 2015 and to 4.2 per cent by 2017.

Canadian Dollar

The Canadian dollar has traded at around 90 cents US for much of 2014 and is expected to average about 91 cents US for the year as a whole, down from 97 cents US in 2013 and parity in 2012. Recently, the dollar has been impacted by the relative strength of the U.S. economy and the stance of monetary policy. As a result of the recent strong U.S. economic performance and reductions in monetary stimulus, the U.S. dollar has appreciated against many currencies including the Canadian dollar. In addition, slow global growth has lowered commodity prices, further weakening the Canadian dollar. The lower dollar should help Ontario businesses compete globally and encourage export growth.

There are divergent views on the direction of the Canadian dollar. Private-sector forecasters expect the dollar to average close to 89 cents US in 2015, with forecasts ranging from 86 cents US to 92 cents US for the year. The dollar is forecast to rise modestly in 2016 and 2017, averaging 92 cents US in 2017.

Forecasts for key external factors are summarized in the table below. These are used as the basis for the Ministry of Finance's forecast for Ontario's economic growth.

TABLE 2.2 Outlook for External Factors
  2011 2012 2013 2014p 2015p 2016p 2017p
World Real GDP Growth
(Per Cent)
4.1 3.4 3.3 3.3 3.8 4.0 4.1
U.S. Real GDP Growth
(Per Cent)
1.6 2.3 2.2 2.2 3.1 2.9 2.7
West Texas Intermediate
Crude Oil ($US/bbl.)
95 94 98 98 93 95 98
Canadian Dollar
(Cents US)
101.1 100.1 97.1 90.8 89.5 91.0 92.0
Three-Month Treasury Bill Rate1
(Per Cent)
0.9 0.9 1.0 0.9 1.2 2.0 3.0
10-Year Government Bond Rate1
(Per Cent)
2.8 1.9 2.3 2.2 2.9 3.5 4.2
p = Ontario Ministry of Finance planning projection based on external sources.
1 Government of Canada interest rates.
Sources: IMF World Economic Outlook (October 2014), U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (October 2014), U.S. Energy Information Administration, Bank of Canada, Ontario Ministry of Finance Survey of Forecasts (October 2014) and Ontario Ministry of Finance.

Table 2.3 provides current estimates of the impact of sustained changes in key external factors on the growth of Ontario's real GDP, assuming other external factors remain unchanged. The relatively wide range for the impacts reflects uncertainty regarding how the economy would be expected to respond to these changes in external conditions.

TABLE 2.3 Impacts of Sustained Changes in Key External Factors on Ontario's Real GDP Growth
(Percentage Point Change)
  First Year Second Year
Canadian Dollar Depreciates by Five Cents US +0.1 to +0.8 +0.2 to +0.9
Crude Oil Prices Decrease by $10 US per Barrel +0.1 to +0.3 +0.1 to +0.3
U.S. Real GDP Growth Increases by One Percentage Point +0.3 to +0.7 +0.4 to +0.8
Canadian Interest Rates Increase by One Percentage Point –0.1 to –0.5 –0.2 to –0.6
Source: Ontario Ministry of Finance.

Outlook for Ontario Economic Growth

The Ministry of Finance is forecasting continued growth in Ontario's economy, with real GDP projected to rise by 1.9 per cent in 2014 and 2.4 per cent annually in 2015, 2016 and 2017. This compares to a forecast for real GDP growth at the time of the 2014 Budget of 2.1 per cent in 2014, 2.5 per cent in both 2015 and 2016, and 2.6 per cent in 2017.

Gains in exports and business investment will lead economic growth over the forecast period. Household spending will also rise moderately, in line with gains in household income.

Ontario employment is expected to grow by 57,000 jobs in 2014. Employment growth is projected to pick up in 2015 alongside improving output growth and business confidence. Employment is forecast to rise by 90,000 jobs or 1.3 per cent in 2015 and then increase by an average of 103,000 jobs or 1.4 per cent per year over 2016 and 2017. Ontario's unemployment rate is expected to average 7.3 per cent in 2014 and fall steadily to an average annual rate of 6.3 per cent in 2017.

Household disposable income is projected to grow by 3.6 per cent in 2014, up from 2.7 per cent in 2013, and then increase by an average of 4.8 per cent annually over the 2015 to 2017 period.

Following two years of increases below 2.0 per cent, the Ontario Consumer Price Index (CPI) is expected to increase by 2.1 per cent in 2014. Sharp increases in world food and energy prices at the beginning of the year, a reflection of harsh winter weather and geopolitical tensions, contributed to higher inflation in 2014. The lower Canadian dollar also contributed to higher consumer prices by increasing the price of imported goods. Consumer prices are expected to increase by an average of 2.0 per cent each year over the 2015 to 2017 period.

Housing starts are expected to total 58,000 units in 2014, down slightly from 61,100 units in 2013. Existing home sales are expected to increase modestly in 2014, following a 0.5 per cent increase in 2013. Demand for new homes in Ontario will continue to be sustained by growth in the population. Housing starts are expected to average 65,300 units per year between 2015 and 2017, largely in line with underlying demographic requirements.

The average Ontario resale home price is expected to increase by nearly 4.0 per cent in 2014. Going forward, a more balanced housing market is expected to contribute to stable average home prices. Although interest rates are predicted to rise gradually over the medium term, mortgage carrying costs are expected to remain affordable.

Canada's household debt-to-income ratio was 163.6 per cent in the second quarter of 2014. Although the debt-to-income ratio changed little over the past five quarters, the level of household debt in Canada remains elevated. Debt service costs as a per cent of household disposable income, a measure of the affordability of interest payments, declined from a high of 9.2 per cent in the fourth quarter of 2007 to 7.0 per cent in the second quarter of 2014, its lowest level on record and a reflection of low interest rates.

Business investment is expected to be one of the drivers of Ontario economic growth over the forecast period. After underperforming over the past two years, private-sector investments in machinery and equipment are expected to increase in the near term, supported by rising corporate profits and improving demand conditions. The Bank of Canada Business Outlook Survey, published in October 2014, supports this outlook for rising business investment over the next 12 months.

The net operating surplus of corporations increased 4.4 per cent in the first half of 2014 compared to the same period a year earlier and is projected to grow by an average of 5.2 per cent annually over the next three years. As a share of Ontario GDP, the net operating surplus of corporations increased to 11.5 per cent in the second quarter of 2014, its highest reading in seven quarters.

The composition and destination of Ontario's exports have evolved and diversified over the last decade. The share of Ontario's exports destined for the United States has declined from 91.5 per cent in 2003 to 78.5 per cent in 2013. Over the same period, the share of Ontario's exports to the European Union and other countries has more than doubled.

The shift in Ontario's trade has included strong gains in exports to the rest of Canada and in exports of high value-added services. From 2003 to 2013, Ontario's total exports to other provinces increased by 37 per cent. Over the same period, exports of services increased by about 58 per cent, while exports of goods declined 1.7 per cent.

Although markets for Ontario exports have become more diversified in recent years, the United States remains by far Ontario's largest trading partner. Solid growth in the United States will support strong demand for Ontario exports. U.S. motor vehicle sales are expected to rise 5.8 per cent in 2014 and 2.4 per cent in 2015. Other key sectors of the U.S. economy that are important for Ontario exports, including residential construction and industrial production, are also projected to increase strongly over the next few years.

Overall, Ontario's total exports in real terms are projected to increase by 3.6 per cent in 2014 and by an average of 3.7 per cent between 2015 and 2017.

Details of the Ontario Economic Outlook

The following table provides details of the Ministry of Finance's economic outlook for 2014 to 2017.

TABLE 2.4 The Ontario Economy, 2012 to 2017
(Per Cent Change)
  Actual Projection
  2012 2013 2014 2015 2016 2017
Real Gross Domestic Product 1.7 1.3 1.9 2.4 2.4 2.4
Household Consumption 1.5 2.1 2.0 2.2 2.6 2.7
Residential Construction 4.7 (2.3) 0.0 1.1 1.6 2.0
Non-residential Construction 7.8 (5.2) (1.5) 4.8 3.0 3.4
Machinery and Equipment (2.8) (8.2) 2.0 6.1 5.3 5.1
Exports 3.3 1.8 3.6 4.4 3.5 3.2
Imports 1.8 0.1 2.5 3.3 2.5 2.6
Nominal Gross Domestic Product 3.2 2.4 3.5 4.4 4.4 4.4
Other Economic Indicators            
Retail Sales 1.6 2.3 4.2 4.1 4.3 4.4
Housing Starts (000s) 76.7 61.1 57.9 60.0 67.0 69.0
Home Resales (1.9) 0.5 1.0 (0.5) 0.5 2.1
Primary Household Income 3.6 2.9 3.7 4.4 4.7 4.6
Compensation of Employees 3.5 2.8 3.4 4.6 4.6 4.6
Net Operating Surplus — Corporations (0.6) 0.0 4.7 5.2 5.7 4.8
Consumer Price Index 1.4 1.0 2.1 2.0 2.0 2.0
Employment 0.8 1.4 0.8 1.3 1.4 1.5
Job Creation (000s) 52 96 57 90 98 107
Unemployment Rate (Per Cent) 7.8 7.5 7.3 7.1 6.6 6.3
Key External Variables            
U.S. Real Gross Domestic Product 2.3 2.2 2.2 3.1 2.9 2.7
WTI Crude Oil ($ US per Barrel) 94 98 98 93 95 98
Canadian Dollar (Cents US) 100.1 97.1 90.8 89.5 91.0 92.0
3-month Treasury Bill Rate1 0.9 1.0 0.9 1.2 2.0 3.0
10-year Government Bond Rate1 1.9 2.3 2.2 2.9 3.5 4.2
1 Government of Canada interest rates (per cent).
Sources: Statistics Canada, Canada Mortgage and Housing Corporation, Canadian Real Estate Association, Bank of Canada, U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (October 2014), U.S. Energy Information Administration and Ontario Ministry of Finance.

Private-Sector Forecasts

The Ministry of Finance consults with private-sector economists and tracks their forecasts to inform the government's planning assumptions. Additionally, in the process of preparing the 2014 Ontario Economic Outlook and Fiscal Review, the Minister of Finance met with private-sector economists to discuss their views on the economy. All private-sector economists are projecting continued growth for Ontario over the forecast horizon. On average, private-sector economists are projecting growth of 2.0 per cent in 2014 and 2.5 per cent annually in 2015, 2016 and 2017. For prudent fiscal planning, the Ministry of Finance's real GDP growth projections are slightly below the average private-sector forecast.

TABLE 2.5 Private-Sector Forecasts for Ontario Real GDP Growth
(Per Cent)
  2014 2015 2016 2017
BMO Capital Markets (October) 2.0 2.4
Central 1 Credit Union (September) 1.7 2.2 2.5 3.3
Centre for Spatial Economics (July) 2.0 2.5 2.5 2.4
CIBC World Markets (September) 2.3 2.8 2.4
Conference Board of Canada (July) 1.5 2.5 2.1 2.2
Desjardins Group (October/June) 2.0 2.4 2.5 2.1
IHS Global Insight (July) 2.0 2.4 2.7 2.4
Laurentian Bank Securities (August) 1.9 2.1
National Bank (September) 2.1 2.4
RBC Financial Group (September) 2.1 2.8
Scotiabank Group (October) 2.0 2.5 2.3
TD Bank Financial Group (October) 2.2 2.7 2.3
University of Toronto (October) 2.0 2.8 2.9 2.8
Private-Sector Survey Average 2.0 2.5 2.5 2.5
Ontario's Planning Assumption 1.9 2.4 2.4 2.4
Sources: Ontario Ministry of Finance Survey of Forecasts (October 2014) and Ontario Ministry of Finance.

Change in the Economic Outlook

The current private-sector average outlook for Ontario real GDP growth is 2.0 per cent in 2014, down from the 2.2 per cent projected at the time of the 2014 Budget. The softer outlook reflects weak growth in the first quarter of the year due in large part to harsh winter weather. Forecasts for 2015 through 2017 have also been revised down slightly compared to forecasts at the time of the 2014 Budget.

Comparison to the 2014 Budget

Compared to the 2014 Budget, key forecast changes include:

  • lower real GDP growth in 2014, 2015 and 2016;
  • stronger CPI inflation in 2014 and 2015; and
  • slower employment growth in 2014, 2015 and 2016.
TABLE 2.6 Changes in Ministry of Finance Key Economic Forecast Assumptions:
2014 Budget Compared to 2014 Fall Economic Statement (FES)
(Per Cent Change)
  2014p 2015p 2016p
  2014
Budget
2014
FES
2014
Budget
2014
FES
2014
Budget
2014
FES
Real Gross Domestic Product 2.1 1.9 2.5 2.4 2.5 2.4
Nominal Gross Domestic Product 3.5 3.5 4.4 4.4 4.4 4.4
Retail Sales 4.1 4.2 4.0 4.1 4.4 4.3
Housing Starts (000s) 58.0 57.9 60.0 60.0 67.0 67.0
Primary Household Income 3.3 3.7 4.4 4.4 4.7 4.7
Compensation of Employees 3.5 3.4 4.6 4.6 4.6 4.6
Net Operating Surplus — Corporations 4.4 4.7 4.2 5.2 5.0 5.7
Employment 1.1 0.8 1.5 1.3 1.6 1.4
Job Creation (000s) 73 57 107 90 110 98
Consumer Price Index 1.5 2.1 1.9 2.0 2.0 2.0
Key External Variables            
U.S. Real Gross Domestic Product 2.7 2.2 3.0 3.1 2.9 2.9
WTI Crude Oil ($ US per Barrel) 97 98 96 93 96 95
Canadian Dollar (Cents US) 90.0 90.8 91.0 89.5 92.0 91.0
3-month Treasury Bill Rate1
(Per Cent)
1.0 0.9 1.3 1.2 2.4 2.0
10-year Government Bond Rate1
(Per Cent)
s2.8 2.2 3.5 2.9 3.9 3.5
p = Ontario Ministry of Finance planning projection.
1 Government of Canada interest rates.
Sources: Blue Chip Economic Indicators (March, April and October 2014) and Ontario Ministry of Finance.

[1] Blue Chip Economic Indicators (October 2014).

Chart 2.1: Ontario’s Economic Expansion

Bar chart shows the per cent change of Ontario’s real GDP along with the per cent change of the major categories of spending that occurred from the recessionary low in the second quarter of 2009 to the latest quarter, the second quarter of 2014.  Since the recessionary low in the second quarter of 2009, real GDP has increased 11.3 per cent; household spending has increased 11.1 per cent; government spending, which includes both investment and current spending, has increased 5.6 per cent; residential investment has increased 19.4 per cent; business investment, which includes non-residential investment, machinery and equipment investment and intellectual property products, has increased 11.6 per cent; exports have increased 26.0 per cent; and imports have increased 28.8 per cent.

Return to Chart 2.1

Chart 2.2: Employment Gains Concentrated in Full-Time, Private-Sector, Above-Average Wage Jobs

Bar chart shows Ontario employment gains since June 2009. Total employment increased by 551,000 since June 2009. Full-time employment increased by 513,000, while part-time employment increased by 38,000. Private-sector employment increased by 393,000, while public-sector employment increased by 103,000 and self-employment rose by 55,000. Employment in above-average wage industries increased by 384,000, while employment in below-average industries increased by 168,000.

Return to Chart 2.2

Chart 2.3: Ontario Job Recovery Ahead of U.S. and OECD Average

Line chart compares the percentage change in employment relative to its pre-recession peak in Ontario, the average for the member countries of the Organisation for Economic Co-operation and Development (OECD) and the United States between the first quarter of 2008 and the third quarter of 2014.

As of the third quarter of 2014, employment in Ontario has recovered to well above its pre-recession peak while the United States is just slightly above its pre-recession peak. As of the second quarter of 2014, the OECD recovery falls between Ontario and the United States.

Return to Chart 2.3

Chart 2.4: Global Economic Growth to Improve

Bar chart shows real GDP growth for the global economy, advanced economies and emerging and developing economies from 2011 to 2015.
Real GDP growth for the global economy was 4.1 per cent in 2011, 3.4 per cent in 2012 and 3.3 per cent in 2013. According to the International Monetary Fund (IMF), growth is projected to be 3.3 per cent in 2014 and 3.8 per cent in 2015.

Real GDP growth for advanced economies was 1.7 per cent in 2011, 1.2 per cent in 2012 and 1.4 per cent in 2013. According to the IMF, growth is projected to be 1.8 per cent in 2014 and 2.3 per cent in 2015.

Real GDP growth for emerging and developing economies was 6.2 per cent in 2011, 5.1 per cent in 2012 and 4.7 per cent in 2013. According to the IMF, growth is projected to be 4.4 per cent in 2014 and 5.0 per cent in 2015.

Return to Chart 2.4

Chart 2.5: Strengthening U.S. Recovery

Bar chart shows U.S. real GDP growth from 2010 to 2017. U.S. real GDP increased 2.5 per cent in 2010 and grew by 1.6 per cent in 2011, 2.3 per cent in 2012 and 2.2 per cent in 2013. According to Blue Chip Economic Indicators, U.S. real GDP is projected to grow by 2.2 per cent in 2014, 3.1 per cent in 2015, 2.9 per cent in 2016 and 2.8 per cent in 2017.

Return to Chart 2.5

Chart 2.6: Oil Prices to Remain High

Line chart shows the price of West Texas Intermediate (WTI) crude oil from 2000 to 2017. The price of WTI crude oil rose from $30 US per barrel in 2000 to $98 US per barrel in 2013. Oil prices are expected to average $98 US per barrel in 2014. The Ontario Ministry of Finance projects oil prices will fall to $93 US per barrel in 2015 and then increase to $95 US per barrel in 2016 and to $98 US per barrel in 2017.

Return to Chart 2.6

Chart 2.7: Interest Rates to Rise Gradually

Line chart showing the 10-year Government of Canada bond yield and the three-month Government of Canada Treasury bill rate from 1990 to 2017. The 10-year Government of Canada bond yield has declined from over 10 per cent in 1990 to a low of 1.9 per cent in 2012. It is expected to rise gradually from 2.2 per cent in 2014 to 4.2 per cent in 2017. The three-month Treasury bill rate has declined from close to 13 per cent in 1990 to 0.9 per cent in 2012. It is projected to rise gradually from 0.9 per cent in 2014 to 3.0 per cent in 2017.

Return to Chart 2.7

Chart 2.8: Canadian Dollar to Remain Below Parity

Line chart showing the Canadian exchange rate from 1990 to 2017 and the low and high private-sector projections for 2014 to 2017. The Canadian dollar fell from 87 cents US in 1991 to a low of 64 cents US in 2002. It trended up over the 2003 to 2012 period and was at parity to the US dollar in 2012. The Ministry of Finance projects the Canadian dollar will fall to 89.5 cents US in 2015 and then increase to 92 cents US in 2017. Private-sector projections range from a high of 98 cents US to a low of 89 cents US in 2017.

Return to Chart 2.8

Chart 2.9: Ontario’s Growth Outlook Led by Exports and Investment

Bar chart shows the average annual real GDP growth of the Ontario economy along with the average annual growth of the major categories of spending over the 2000 to 2007 period and forecasts over the 2014 to 2017 period.  Ontario’s annual real GDP growth averaged 2.7 per cent for the 2000 to 2007 period and is projected to average 2.3 per cent for the 2014 to 2017 period.  Household spending growth averaged 3.4 per cent for the 2000 to 2007 period and is projected to average 2.4 per cent for the 2014 to 2017 period. Government spending growth, which includes both investment and current spending, averaged 3.6 per cent for the 2000 to 2007 period and is projected to average -0.3 per cent for the 2014 to 2017 period.  Residential investment growth averaged 4.7 per cent for the 2000 to 2007 period and is projected to average 1.2 per cent for the 2014 to 2017 period.  Business investment growth, which includes non-residential investment, machinery and equipment investment and intellectual property products, averaged 2.9 per cent for the 2000 to 2007 period and is projected to average 3.5 per cent for the 2014 to 2017 period. Export growth averaged 1.8 per cent for the 2000 to 2007 period and is projected to average 3.7 per cent for the 2014 to 2017 period. Import growth averaged 3.2 per cent for the 2000 to 2007 period and is projected to average 2.7 per cent for the 2014 to 2017 period.

Return to Chart 2.9

Chart 2.10: Employment Expected to Rise Over the Medium Term

Bar chart shows the annual level of Ontario employment from 2009 to 2017. Ontario employment rose from 6.5 million in 2009 to 6.9 million in 2013. The Ontario Ministry of Finance projects employment will increase steadily to 7.2 million in 2017.

Return to Chart 2.10

Chart 2.11: Housing in Ontario to Remain Affordable

Line chart shows the mortgage carrying cost as a share of disposable income per household in Ontario from 1981 to 2017. The line increased to a high of almost 37 per cent in 1990 and then declined to a low of 20 per cent in 1998. It has since trended higher, surpassing 26 per cent in 2013. The Ontario Ministry of Finance projects the share to remain close to 27 per cent over the 2014 to 2017 period.

Return to Chart 2.11

Chart 2.12: Although Elevated, Canadian Household Debt Remains Affordable

Line chart from the first quarter of 2000 to the second quarter of 2014 shows Canadian household debt as a percentage of household disposable income and Canadian debt service costs as a per cent of household disposable income.   The line for household debt as a per cent of household disposable income increased steadily from 108.1 per cent in the first quarter of 2000 to a peak of 164.1 per cent in the third quarter of 2013.  It has since edged down to 163.6 per cent in the second quarter of 2014, but remains at an historically elevated level.  The line for debt service costs as a per cent of household disposable income was in the high eight per cent range over the 2000 to mid-2001 period, easing to the mid seven to low eight per cent range over the 2002-06 period. The ratio began to rise subsequently, hitting a peak of 9.2 per cent in fourth quarter of 2007.  From this peak it declined steadily, falling to 7.0 per cent in the second quarter of 2014, its lowest level on record.

Return to Chart 2.12

Chart 2.13: Ontario Business Machinery and Equipment Investment Expected to Rise in Line with Profits

Two line charts show business machinery and equipment (M&E) investment (in real 2007 dollars) and net operating surplus (in nominal dollars) from 2009 to 2017. Investments in machinery and equipment increased from $21.8 billion in 2009 to $24.4 billion in 2011 and declined back to $21.8 billion in 2013. The Ontario Ministry of Finance projects M&E investments to increase to $26.1 billion by 2017.

Net operating surplus of corporations increased from $58.4 billion in 2009 to $84.3 billion in 2011 and was little changed since then, staying at $83.8 billion in 2012 and 2013. The Ontario Ministry of Finance projects net operating surplus of corporations to increase to $102.2 billion by 2017.

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Chart 2.14: Exports Expected to Increase

The bar chart shows the annual level of Ontario exports in 2007 dollars from 2007 to 2017. Exports fell from $339 billion in 2007 to a low of $274 billion in 2009. Exports steadily increased to $329 billion in 2013. The Ontario Ministry of Finance projects exports will increase to $381 billion by 2017.

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Chart 2.15: Private-Sector Outlook for Growth Down Slightly

The bar chart shows the average private-sector projection for Ontario’s real GDP growth at the time of the 2014 Budget and 2014 Ontario Economic Outlook and Fiscal Review (the current view).

The average private-sector forecast for Ontario real GDP growth for 2014 was 2.2 per cent in the 2014 Budget and is 2.0 per cent currently.

The average private-sector forecast for Ontario real GDP growth for 2015 and 2016 was 2.6 per cent in the 2014 Budget and is 2.5 per cent currently.

The average private-sector forecast for Ontario real GDP growth for 2017 was 2.7 per cent in the 2014 Budget and is 2.5 per cent currently.

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